Know Standard Deduction

What is Standard Deduction ?

The Income Tax Act provides provisions for imposing taxes on the income of citizens but also offers several ways through which one can claim deductions and rebates. The assumptions have been allowed, which is based on the way that how the taxpayers are spending their income.

One such offered deduction to salaried individuals can be the standard deduction. But, you must know that the salaried individuals and pensioners can also claim a certain amount under the standard deduction by default without any investment or spending of money by the taxpayers. The provision was taken down for several years and was also re-introduced during the Budget, which was announced in 2018.

Here is everything you are required to know about the standard deduction for salaried individuals.

Standard Deduction – Union Budget 2018

The former finance minister of India, Late Mr. Arun Jaitley, introduced Standard Deduction of 40,000 INR in Budget 2018 by giving the salaried class something to rejoice. It replaced the transport allowance of 19200 INR and medical reimbursement of 15,000 INR per annum.

Interestingly, earlier, the provision of Standard Deduction was available. However, it was formerly put to an end in the Finance Act 2005.

The standard deduction is generally deducted from the gross salary and also claimed as an exemption. This type of deduction can also be claimed and allowed to all salaried type of employees who are irrespective of any category and type need of any type of investment.

Standard Deduction in Interim Budget 2019

The Interim Budget is basically a presented on 1 February 2019 included in numerous tax benefits for a salaried and also the middle class. Among them, an additional amount of 10,000 INR (increased from 40,000 INR) to the Standard Deduction is a noteworthy move.

With the Standard Deduction being 50,000 INR now, it will help taxpayers immensely reduce outgo their taxes.

Now, let us understand this with a small example:

Particulars Until AY 2018-19 From AY 2019-20 From AY 2020-21
Gross Salary (INR) 8,00,000 8,00,000 8,00,000
(-) Transport Allowance 19,200 Not Applicable Not Applicable
(-) Medical Allowance 15,000 Not Applicable Not Applicable
(-) Standard Deduction Not Applicable 40,000 50,000
Net Salary 7,65,800 7,60,000 7,50,000

From the above, it is clearly understood that the taxable salary has come down on the standard deduction.

Taxpayers who are receiving Pension

In a recent clarification, it is issued by the income tax department; if a taxpayer is receiving a pension from the former employer, it is taxable under the head ‘Salaries.

Therefore, the taxpayer can also claim a standard deduction of 40,000 INR or the pension amount, whichever is less.

*Increased to 50,000 INR through the Interim Budget 2019 for FY 2019-2020(AY 2020-21).

Point to be taken:

All said and done that though the impact of this amendment for the salaried might appear minimal, employers. With this move, it would stand to gain in terms of being spared of many administrative efforts in processing medical bills employees. Perhaps, that was the plan of the legislature.

The standard deduction in the case of the New Tax regime

Budget 2020 introduced a new tax regime. Under this new regime, the taxpayers can pay concessional tax rates; however, significant deductions and exemptions aren’t allowed under this new regime.

From salary income, standard deductions are allowed and also not allowed if the taxpayer is filing a return in the new tax regime.

Particulars Old Tax regime (FY 2021-22) New tax regime (FY 2021-22)
Salary income 5,00,000 5,00,000
Standard Deduction (50,000) N.A
Taxable salary 4,50,000 5,00,000

How is standard deduction calculated in one year in the case of multiple employers?

The standard deduction is also available in the way and form of a just a flat deduction from the total earned salary which is basically earned by employee in a one particular financial year. It doesn’t depend on the number of jobs which the employee changes. Hence one flat deduction is also available for the cumulative salary which is earned from all the employers. For FY 2020-21, the standard deduction remains the same as the previous year at 50,000 INR.

Frequently Asked Questions:

Can I claim a income tax deduction of 50,000 for previous filled returns also?

No, you can claim a deduction of 50,000 from the previous year, 2019-2020 only. Before that, the limit was 40,000.

Can I claim a transport allowance and a medical allowance as well as a along with the claiming a standard deduction?

No, you can claim only a standard deduction of 50,000 and not the transport and medical allowance.

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